Sunday, February 10. 2019

To say that blockchain is overhyped is to put it mildly - not a day goes by without some pundit proclaiming that industry X will be transformed by it. Most of this is speculation, based - as far as I can see - on little understanding of the technology or the viable alternatives. For most proposals, somewhere between the hype and heuristics is a major disconnect.

This post is not going to go into the ins and outs of blockchains, but will just point out the basics of what defines whether it will transform Industry X (this post summarises a more detailed article I wrote last year - go there for the more tech stuff - in our preparation for the blockchain work last year for helping to run the London part of Global Legal Hackathon.

In short, its all about ROI on the transaction costs..... in essence blockchain technology (as designed today) is great if you want transactions that are:

secure (ish - the overall flowchain of a blockhain system has shown itself to be prone to all the standard hacking problems),
resilient,
no trusted 3rd party (TTP).

But, owing to the high calculation load to be secure/resilient/not require a TTP, for blockchain to work it also needs transactions to be:

relatively low volume (c 6 a second for Bitcoin for eg)
not particularly time sensitive (hours, or even days to complete the agreement between nodes)
relatively high transaction value - as these calculation loads massively increase the blockchain transaction cost.

This is captured in the 2 x 2 matrix above - there is only one "sweet spot" square for blockchain, that where the value and rate of transaction flow makes blockchain a useful solution. So for applications that are:

High volume, Low value - blockchain is a lousy solution in every single way unless the need for the secure/resilient/TTP overrides everything.

High Volume, High Value - the value means blockchain transactions cost in, but the high volume and resulting time lags will probably break the system or render it useless for most cases

Low volume, Low value - can cope with the volume, but unless the need for the secure/resilient/TTP overrides every consideration, or one is prepared to fund the transaction in another way (VC stump money, subsidies, indirect gains) there are far better approaches around today.
Low Volume, High Value - this is the sweet spot - transaction values make it economic to use, volumes don't break it.

Worryingly, for a lot of mooted applications there is not a hope in hell that Blockchains (in their current forms), will be fast enough or cheap enough to work. To be fair, there are now more and more blockchain approaches entering the market, but there is always a trade-off of speed and/or secure processing. Here is what is more likely to happen in most cases:

1. For most non "sweet spot" blockchain applications there are existing, cheaper, faster “Good Enoughs” today. There will nearly always be an alternative case to employ more scalable/lower cost/faster performance blockchain system designs with:

Less distributed architecture to scale it for speed and cost
Less complex security in the blockchain to reduce the processing load time and cost

2. This will probably be done by implementing them as “private and much less distributed” systems behind IT datacentre security walls, ie “Walled Garden” blockchains will very probably put themselves in the position of the TTP supplier. (This is what is in fact happening today, I first saw this predicted in 2015 by Dinis Garda looking at IoT outcomes).

Which of course negates a lot of the theoretical benefit of the Blockchain idea itself.....

There's a lot of discussion at the moment about Comcast's Blockgraph initiative, designed to be an industry collaboration to securely share advertising data in a privacy compliant manner without a trusted third party.
On this analysis it should be in the sweet spot (if it doesn't drift into the top right corner).
There is an imperative in the industry for a solution that does not require a trusted third party and the transaction values are [thought to be] high.
One to watch... assuming the data is aggregated the transaction volumed should be liveable with.

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